The Applicability of cash flow statements is clearly defined under the companies act 2013. As per the above consideration, the financial statements include.
- Balance sheet.
- Profit and loss Account or Income and Expenditure Account.
- Cash Flow Statement.
- Statement of Changes In Equity.
- Explanatory Notes.
Applicability of AS 3 Cash Flow Statements
Most of the companies are going to prepare the Cash Flow Statements except few companies like One Person Company OPC, Small Company and Dormant Company.
- OPC = One Single Person.
- A Small Company = Max Paid Up Capital is Rs 50 Lakhs and Max Turnover is 2 Crores.
- A Dormant Company is formed for Future Projects only to hold Assets.
Cash and Cash Equivalents
- Which can be easily converted into cash within a short period of time is known as Cash or Cash Equivalent.
- An Investment easily convertible into cash
- Very Low-level risk and slight changes in the Price or Value.
- An investment would qualify to be cash equivalent which can be converted into cash within 3 months or before it.
Cash Flow Statement is based upon the three main activities they are
- Operating Activities.
- Investing Activities.
- Financing Activities.
Companies must and should prepare and present cash flow Statements from Various Activities like Operating, Financing as well as Investing point of view.
Operating Activities:– These are activities that are related to the revenue generation for the survival of the business or Enterprise.
- Cash Paid to a Supplier for Goods and Services.
- PDF Cash Received on a sale of Goods.
- Cash Received For Services Rendered.
Investing Activities:– Cash Flows from Investing Activities which will generate income for future purposes.
- Cash Received From the sale of Assets.
- PDF Cash Paid For Purchase of Fixed Assets.
- Cash Paid For buying Shares, Warrants or Debt Instruments of other companies.
Financing Activities:- These activities are related to increases in the Owners Capital and Borrowings for Enterprise Development.
Cash Received from issuing debentures, Bonds, Short Term and Long Term Borrowings.
PDF Cash Payment on Borrowings.
Cash Flow From Operating Activities
These are classified into two categories they are
Direct Method:– Where all the cash receipts and cash payments are presented in the cash flow statement under Operating Activities.
Indirect Method:– Only Net Profit or Net Loss is adjusted for non Cash transactions like depreciation, Deferred Taxes, provisions, ..etc.
Accruals or Deferrals of Future or past operating cash payments.
Any income or Expenses related to Financing and Investing are recorded in the Cash Flow Statement.
Cash Flow On Net Basis
Proceeds and Payments in cash on behalf of a client where cash flows reflect various activities of the client rather than of the company itself.
Proceeds and Payments in cash for items where the amounts are huge, Maturities are short and Turnover is Quick.
Cash Flows that arise from each of the below-mentioned activities of any financial enterprise might.